4% GDP Not Enough to Keep Gains

GDP is 4% and in line with the Feds expectations for second quarter. Is it me or did the announcement of the GDP just happen to be on the same day as the FOMC meeting? And what about the number be exact to the Feds estimate? Interesting how that all happened in perfect harmony. Okay I am sure there is a perfectly good reason for all that to take place now. Large ticket items and business investment were the two drivers for the growth in Q2. The negatives were a rise in spending on inventory and government spending.  The additional positive was the Q3 and Q4 estimates have been revised higher to 3% growth. Jobs, investing and spending are the reasons for the increased growth outlook. Bottom line, optimism from all, and I hope they are all right.

FOMC meeting ends with similar results… no changes in rates and full speed ahead to cut stimulus to zero by October. The next thing will be the minutes from the meeting today on August 20th. Will they give better insight into the language and outlook for the economy? That will be interesting as it unfolds, but for now no real impact from the meeting on the financials markets.

Semiconductors rose again gaining 1.1% on the day. The weak earnings prompted some profit taking last week and the positive news in the economy sparked buyers to step back in and erase the drop. The global stocks in the sector, ASML, NXPI and ARMH were the primary leaders with AMD, NVDA and ATML helping boost the sector. Looking for a move above $84.60 to confirm the bottom reversal in the sector. Scanning the stocks in the sector still shows weakness… watch for more on the downside if the broad markets fail.

SOX

Telecom (IYZ) jumped 3.2% on Tuesday and held those gains today. The cause for the move higher was Windstream announced it was interested in spinning off all its assets into a REIT structure and then leasing them back. This would be done essentially for tax benefits, I mean to free up trapped values of the underlying assets. It will take time to get regulatory approval and thus, will likely create more volatility for the sector going forward. Watching to the ripple effect and opportunities in the sector going forward.

Homebuilders (ITB) are¬†down 10% this month¬†and the pending home sales Monday¬†didn’t do the sector any favors as they test¬†support at¬†$27.75. Not looking good from my perspective with the break below support today. This puts the short side in control of the trend and we will now look to add trading position in the put options or short ITB.¬†No bounced materialized prior to the break lower and that leaves some room for a bounce to still play out short term.

ITB

Small Caps (IWM) attempted to put a bounce move together again today, but that failed to a make a substantial move in the sector or hold above the $114 level. We would still like to see a move back above the $114 mark and hold. If support at the $112.20 level fails the short side trade would then be attractive.

FOMC meeting day should have been a plus for yields to rise… Yields and¬†the thirty-year treasury bond move to 3.29% or a gain of 7 basis points on the day. That pushed TLT lower by 1.2% and left the downside outlook as a possibility going forward.¬†This is a one day reaction the proof will be going forward. If investors believe the growth in the economy is here to stay and that the Fed will have to push rates higher in the near term, rates will start to rise naturally. If we are not successful pushing yields higher watch how the equity markets respond. TBT is back on our watch list going forward.

Social Media (SOCL) got a bump higher from the TWTR news. The break above the 200 DMA and to the $20 mark was a positive for the sector short term. YELP, WB, JIVE and LNKD all posted gains above 3% on the day. Throw in the positive funding news from SnapChat today and it was all good. Chart below shows the cup and handle pattern in play.

SOCL

Volatility index (VIX) is showing signs of rising skepticism about direction. The positive open faded, the positive FOMC bounce faded, and the worries continues to keep the VIX index in the mix. VXX was up 1.5% on the day and it should, by all reasonable standards, been down. We have to keep our eyes on this as we go forward.

VIX

All of the up and down movement is only feeding the noise in the media. Analyst equally have been skeptical on the projections and outlook. All said, we remain in a period of transition. What is ironic about this response is we are getting the positive news that many predicted. But, as the old saying goes, buy on the rumor and sell on the news. The news is out and sellers keep attempting to take some control of the direction short term. This is a good time to practice patience. Let any move validate direction before over committing up or down. Take what the market gives and if the downside gains momentum be willing to step in as well.